Law:

Section:

Section 4, read with sections 64 and 171, of the Income-tax Act, 1961 - Income - Diversion of, by over-riding title - Assessment years 1976-77, 1978-79, 1981-82 to 1983-84 - Assessee was karta of an HUF consisting of himself, his wife and their son 'P'-HUF was a partner in a firm 'N' represented by assessee- karta - HUF had 75 per cent share in firm - On partial partition of HUF, out of 75 per cent share, assessee's son was given one-third share and balance was held by assessee, subject to half of income, i.e., 25 per cent share of income, being payable to his wife - ITO held that with regard to 50 per cent share, there was sub-partnership between assessee and his wife and so he added such income of wife to income of assessee - Whether this was a case of diversion of profit at source and assessee's wife had only agreed to make a partition as recital in partition deed stated and not to any other transaction and, therefore, partnership was not to be inferred - Held, yes - Whether Tribunal was justified in holding that there was no sub-partnership formed between assessee and his wife and share of assessee's wife could not be included in income of assessee - Held, yes FACTS The assessee was the karta of an HUF comprising of his wife and son. The HUF was a partner in the firm 'N' with a share of 75 per cent. On partial partition, the son was given one-third share with a right to become partner in firm 'N'. The balance 50 per cent share was held by the assessee subject to half of income, i.e., 25 per cent share from 'N' being payable to his wife. A new partnership deed was executed with the assessee having 50 per cent share and his son having 25 per cent share in firm 'N'. The ITO held that with regard to the 50 per cent share of the assessee in the firm 'N', there came into existence a sub-partnership between the assessee and his wife and, therefore, he added the share of income of the wife to the income of the assessee. The Commissioner (Appeals) allowed the assessee's appeal. On the revenue's appeal, the Tribunal came to the conclusion that it was not a case of sharing the profits of a partnership between the assessee and his wife but of subjecting the assessee's…

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